Huge U.S. coal company declares bankruptcy

Bad investments, cheap natural gas and air pollution regulations led to Arch's decline.

 

One of the nation’s largest coal companies, Arch Coal, filed for bankruptcy Monday, making it the second company with large Western mines to seek Chapter 11 restructuring in recent months. 

The St. Louis-based company announced that it expects to continue to operate its mines and pay its 4,600 employees while it seeks a bankruptcy court’s approval for its debt restructuring.  Arch said its lenders had agreed to reduce its debt by more than $4.5 billion, but that deal would have to be approved by the court.

Responding to its employees’ and retirees’ fears, Arch said it does not anticipate major layoffs or disruptions to its pensions due to the bankruptcy. But it conceded that market conditions may impact staffing. The company operates two surface mines in Wyoming’s Powder River Basin as well as the underground West Elk mine in Somerset, Colorado. It has proposed opening a surface mine in southeastern Montana, the Otter Creek project. It also has mines in Appalachia and Illinois.

Black Thunder, Arch's largest mine, helps Wyoming lead the nation in coal production.
EcoFlight

“Over the past several years, a confluence of economic challenges and regulatory hurdles has hobbled the coal industry,” John Drexler, Arch’s chief financial officer, said in a filing with a U.S. bankruptcy court in Missouri.  The company could no longer pay annual fees of $360 million on its $5 billion debt, given the “current depressed coal market.”

The company’s financial troubles stem from its purchase of the International Coal Group for $3.4 billion in 2011, which made it the second largest producer of metallurgical coal, used to make steel. Following that deal, world prices for metallurgical coal tanked, leaving Arch swamped in debt. As HCN has reported, Virginia-based Alpha and Peabody, the world’s largest private-sector coal company, made similar bad investments in metallurgical coal mines when prices were near peak. Peabody’s stock, already a fraction of what it was just a few months ago, dropped 20 percent on Monday following Arch’s news.

Adding to the coal giants’ troubles, electric companies have been switching to natural gas, both because of its low price and because of state and federal air pollution regulations. Coal is the dirtiest source of electricity both in terms of conventional air pollution and the carbon emissions that contribute to climate change. By requiring states to reduce greenhouse gas emissions from their electricity sectors, President Obama’s Clean Power Plan is expected to further reduce the use of coal in coming years unless the plan is stopped by pending legal challenges from states and utilities.  

Arch anticipates that by the time those cases make it through the courts, coal’s fate may already be sealed. “By the time legal challenges have been resolved, it is possible that many of the required investments may have already been made, resulting in further coal plant retirements, which would have severe consequences for Arch’s business,” Drexler writes in his declaration.

U.S. coal companies’ hopes that a growing export market would offset domestic declines have not materialized. The international climate change agreement reached in Paris in December puts pressure on countries around the globe to reduce their coal use.

Although it’s too early to know what impact the bankruptcy will have on Arch’s various operations, the company’s Powder River Basin mines are among its most profitable and likely will keep operating, even after the company makes it through bankruptcy either by Arch or new owners, according to experts.  They “are among the few assets right now creating cash and revenues for Arch and therefore they are likely to be quite safe,” says University of Wyoming economic professor Robert Godby. West Elk’s prospects are less clear. The mine already struggles with profitability, so much so that Arch negotiated a lower royalty rate with the federal government because of the relative high cost of mining the coal.

Environmental groups hoped that the federal government would not continue to reduce Arch’s royalty rates and otherwise prop up the company, given the outsized role greenhouse gas emissions from coal play in climate change.  Environmental groups also worried about the implications of Arch’s bankruptcy for the reclamation of its massive surface mines in  Wyoming.

WildEarth Guardians wrote to Arch beseeching the company to use the bankruptcy to plan an orderly exit strategy. “This needs to be about emerging from bankruptcy with a plan for going out of business,” says Jeremy Nichols, who directs the group’s climate and energy programs. “The reality is that’s where the world is going.”

Elizabeth Shogren is HCN's DC correspondent. 

David W Hamilton
David W Hamilton Subscriber
Jan 12, 2016 01:57 PM
This is a good illustration of why Naomi Klein is correct the Neoliberal plutocratic Deep State will have to be disabled if there is to be any prospect of fighting Global Warming other than with words!
The government is already going for regulation changes to facilitate Otter Creek and plans to reduce already laughable royalty rates to bail out a company that runs in complete contradiction of our stated Global Warming objectives and commitments.
This administration totally contradicts itself at every turn in land use and environmental policy and regulation...because it is not in control of actual policy implementation.
David W Hamilton
David W Hamilton Subscriber
Jan 12, 2016 01:58 PM
This is a good illustration of why Naomi Klein is correct the Neoliberal plutocratic Deep State will have to be disabled if there is to be any prospect of fighting Global Warming other than with words!
The government is already going for regulation changes to facilitate Otter Creek and plans to reduce already laughable royalty rates to bail out a company that runs in complete contradiction of our stated Global Warming objectives and commitments.
This administration totally contradicts itself at every turn in land use and environmental policy and regulation...because it is not in control of actual policy implementation.
Linda G Johnson
Linda G Johnson Subscriber
Jan 12, 2016 03:21 PM
Coal billionaire reaching into taxpayer pockets with refund request for defunct mine
Posted on January 12, 2016 by Bob Berwyn
asdf
A federal handout to Bill Koch?
Feds propose multimillion dollar fossil fuel rebate
Staff Report
Against a backdrop of falling coal prices and the recent bankruptcy declaration of Arch Coal, the federal government is proposing to refund as much as $14 million dollars to Bill Koch. The billionaire claims he is entitled to the money because of “adverse geologic and engineering conditions” at the now-closed Oxbow Mine, near Somerset, along the Gunnison River in western Colorado.
The proposed refund would be structured as a royalty rate reduction from 8 percent to 5 percent, retroactive to 2012, according to a December letter from the federal Bureau of Land Management to Colorado Gov. John Hickenlooper.
Oxbow Mining is a subsidiary of Koch-controlled Oxbow Carbon LLC. The Colorado mine closed two years after a fire. Reuters reported that recent regulatory filing show that the company has no plans to reopen the mine, and that machinery is already being sold off as scrap.
In the letter to Hickenlooper, asking for comment, the BLM said it wants to approve the rebate, eliciting ridicule and outrage from environmental activists fighting to protect the world’s climate from fossil fuel impacts.
Use this link to see a copy of the letter to Gov. Hickenlooper from the BLM:
http://summitcountyvoice.com/[…]/#more-72494
William Brooks
William Brooks Subscriber
Jan 15, 2016 09:20 PM
It's not just BLM and other federal [taxpayer] subsidies that enrich Big Coal, andy the Kochs, and their like.

Look at the "forgiveness" that Wyoming and West Virginia have dealt bankrupt Alpha Natural Resources (lots more on them below) in state deals to diminish bond funds for long term clean-up and reclamation of their mines. Hundreds of million$ forgiven.

Seems Wyoming dropped clean-up and closure bond requirements from $411 million to $61 million. "A landowners group blasted the agreement, noting that roughly $350 million of Alpha’s reclamation obligations remain unsecured."
http://billingsgazette.com/[…]5dad-8f2e-65c1cd08f5d6.html

A similar deal with West Virginia, King Coal's favored subordinate state, has a new bonding shortfall of over $200 million that was formerly required for the bankrupt company's 500 sites.

http://www.wvgazettemail.co[…]alpha-reclamation-bond-deal

Three environmental groups have filed suit against this deal, saying it could bankrupt the state's entire remediation fund when disaster strikes. Sierra Club, West Virginia Highlands Conservancy, and Ohio Valley Environmental Coalition are doing the work the state is supposed to be doing: seeing there is a reclamation fund for when the coal is gone or the tailings ponds breach or the mine continues to leach.
https://www.documentcloud.org/[…]/2647049-Sierra-Club-Objection-2.html

Wastewater treatment will be required for decades at some of these sites. Just how did those original "self bonding" deals ever get approved?
Linda G Johnson
Linda G Johnson Subscriber
Jan 12, 2016 03:23 PM
Coal billionaire reaching into taxpayer pockets with refund request for defunct mine
Posted on January 12, 2016 by Bob Berwyn
asdf
A federal handout to Bill Koch?
Feds propose multimillion dollar fossil fuel rebate
Staff Report
Against a backdrop of falling coal prices and the recent bankruptcy declaration of Arch Coal, the federal government is proposing to refund as much as $14 million dollars to Bill Koch. The billionaire claims he is entitled to the money because of “adverse geologic and engineering conditions” at the now-closed Oxbow Mine, near Somerset, along the Gunnison River in western Colorado.
The proposed refund would be structured as a royalty rate reduction from 8 percent to 5 percent, retroactive to 2012, according to a December letter from the federal Bureau of Land Management to Colorado Gov. John Hickenlooper.
Oxbow Mining is a subsidiary of Koch-controlled Oxbow Carbon LLC. The Colorado mine closed two years after a fire. Reuters reported that recent regulatory filing show that the company has no plans to reopen the mine, and that machinery is already being sold off as scrap.
In the letter to Hickenlooper, asking for comment, the BLM said it wants to approve the rebate, eliciting ridicule and outrage from environmental activists fighting to protect the world’s climate from fossil fuel impacts.
Use this link to see a copy of the letter to Gov. Hickenlooper from the BLM:
http://summitcountyvoice.com/[…]/#more-72494
Andy Grosland
Andy Grosland
Jan 12, 2016 07:23 PM
Sounds to me like more stupid decisions by greedy investors.
William Brooks
William Brooks Subscriber
Jan 15, 2016 08:08 PM
These same human and environmental and economic disasters are still happening here in Appalachia.

Bristol, Virginia's Alpha Natural Resources, perhaps the second largest US coal company at one time, filed for bankruptcy last August. Today, the executives are plotting how to stiff the workers and retirees and keep their big paychecks.

Once trading on the NYSE as ANR, Alpha peaked at over $100 per share. Today Alpha is an OTC "penny stock" ANRZ, worth about a penny a share today. As HCN has noted, it wasn't Obama and EPA protecting us [and the planet] from coal, but fracking gas, and the companies hubris, that took them under. And outlaw competitors. Their founding CEO had retired and greed took over.

Last month Alpha paid their executives big bonuses: "On Dec. 3, the coal mining firm filed a motion in U.S. bankruptcy court in Richmond, seeking to provide between $7 million and $14 million in performance bonuses to some upper management employees." While in Chapter 11. Bankrupt.

These "executives" are trying to drop retirement obligations to 4,500 non-union retirees. In 2014, these retirement obligations only cost $2.7 million. They also filed with the court, sinister plans to:

> Eliminate short-term disability insurance benefits. Any injury would be covered by workers compensation;
» Medical, dental, vision, prescription and company-provided basic life insurance will end 180 days after the date of an employee disability;
» Medical, dental, vision, prescription and company life and disability coverage will end at the date employment ends;
» Suspend employer matching contributions to 401k retirement savings plans for all participants;
...and more employee harms.

The founder and former CEO, Michael Quillen, to his great credit, had things to say about this. Mr. Quillen is a rich man, and he filed challenges in bankruptcy court, and said:

“While I understand the challenges that Alpha Natural Resources has faced in recent years, to suddenly try to eliminate retiree health benefits of thousands of families goes against the values the company was built on,” Quillen said in a written statement issued through the Hodges Partnership, a Richmond law firm.
“We made a pledge to our employees to provide a safe place to work and benefits that would extend beyond their years of employment,” Quillen said. “It’s imperative for the company to honor that pledge. I sincerely want to see the company survive, strengthen and take care of existing employees while recognizing the contribution of those who helped grow the company and the companies acquired since 2002.” -from the Bristol Herald Courier

and, the Courier Herald goes on: "A group of former Alpha Natural Resources executives, including founder and former CEO Michael Quillen, has filed an objection to the company’s motion to terminate benefits of non-union retirees.
Quillen and seven other Alpha retirees filed the objection Wednesday in U.S. bankruptcy court in Richmond. In a motion filed last week, Alpha is asking the court to allow it to terminate hospital, medical, prescription, surgical and life insurance benefits for more than 4,500 non-union retirees and their surviving spouses…."


From http://www.heraldcourier.co[…]11e5-b1da-6b8fdddbd5a7.html

Look for Archer to do these same reprehensible things to their current and past employees. The bankruptcy court will likely condone it. The remaining jobs will get more dangerous, and the company will get meaner. That's the history of Big Coal. We've seen this for centuries. Occasionally, a smart leader like Mr. Quillen comes along and tries to make things safer. But for every Michael Quillen, there's a Don Blankenship competing and taking his company down by killing workers, while making a killing: http://www.wvgazettemail.com/blankenship

Blankenships' latest outlaw mine disaster killed 29 men. Single fatalities, injury, disability and chronic illness aren't newsworthy. They're overhead, shed through bankruptcy or termination.

See also, America's Most Notorious Coal Baron Goes on Trial This Week, The Fall of King Coal, http://www.motherjones.com/[…]/blankenship-trial-king-coal-west-virginia

Later this month, Alpha expects to sell or auction 23 properties [mines] in Virginia, West Virginia, Kentucky, Tennessee and Illinois. And the court will rule if retirees have their promised health care and retirement.
Linda G Johnson
Linda G Johnson Subscriber
Jan 16, 2016 09:00 AM
See today's news that the federal government wants to put any new coal leasing into abeyance till they study the viability. Perhaps two minutes too late for a new lease in Utah, or perhaps just in time. Also there's a proposal to continue mining in Utah near Price, to manufacture a waxy crude oil product to refine near Green River, supposed to make "cleaner diesel" using a process similar to that the Nazis used in WWII to manufacture gas when they couldn't import any for their war effort. Strong reminder of the very oldfashioned saying, "a mother's work is never done."